One of the Leading Aesthetics Solution Provider with a Wide Range of Premium Products
As per CRISIL Report, SJS is one of the leading decorative aesthetics suppliers
with the widest product coverage across decorative aesthetics pertaining to major
vehicle segments such as two-wheelers (2W), passenger vehicles (PV) and consumer
appliances. Additionally, it manufactures a wide range of aesthetics products that
cater to the requirements of the commercial vehicles (CV), medical devices, farm
equipment, and sanitary ware industries.
In FY21, it supplied over 11.5 crore parts with more than 6,000 SKUs to around 170 customers in ~90 cities across 20 countries. Its product offerings include decals and body graphics, 2D appliques and dials, 3D appliques and dials, 3D lux badges, domes, overlays, aluminium badges, IML/IMD, lens mask assembly and chrome-plated, printed, and painted injection moulded plastic parts. It also offers a variety of accessories for the 2W and PV aftermarket under its ‘Transform’ brand. It has capabilities to engineer products across multiple substrates, from styling and tooling to injection moulding, lens moulding, high-end printing, metal forming and plastic chrome-plating.
Products | FY19 | FY20 | FY21 | Q1FY22 | ||||
---|---|---|---|---|---|---|---|---|
Revenue | % | Revenue | % | Revenue | % | Revenue | % | |
3D lux badges | 56.84 | 24.11% | 44.23 | 20.75% | 44.63 | 18.01% | 9.13 | 16.18% |
Domes | 5.58 | 2.37% | 6.50 | 3.05% | 7.19 | 2.90% | 1.54 | 2.73% |
Overlays | 29.32 | 12.43% | 33.34 | 15.64% | 40.05 | 16.16% | 10.91 | 19.33% |
Aluminium Badges | 5.93 | 2.51% | 7.17 | 3.36% | 7.54 | 3.04% | 2.15 | 3.81% |
IMLs/IMDs | 0.07 | 0.03% | 3.60 | 1.69% | 5.23 | 2.11% | 1.43 | 2.53% |
Lens Mask Assembly | 0.60 | 0.25% | 6.73 | 3.16% | 10.41 | 4.20% | 2.17 | 3.84% |
Nickel Badges | 2.60 | 1.10% | 3.85 | 1.81% | 7.36 | 2.97% | 1.82 | 3.22% |
Total Revenue | 235.79 | 100.00% | 213.15 | 100.00% | 247.77 | 100.00% | 56.44 | 100.00% |
Source: Company RHP
Innovation and Product Design and Development Capabilities
The company offers customised set of solutions to its customers, including collaborative
design and product development. Its designers conceptualise and co-develop new designs
for customers at the design studio in Bengaluru facility. As at June, 2021, it had
a team of 44 personnel for New Product Development, including design and development
team of six people, which primarily works on the design, development and prototypes
of new products and certain product upgrades. Its subsidiary also has a design department
which includes computer-aided-design engineers, program managers and tooling managers
to manage any new product lifecycle. It has capabilities to engineer products using
multiple material substrates and processes, from injection moulding to metal forming.
The company collaborated with Suzuki to design and develop aesthetics for its Swift, Ertiga, and WagonR. Other customers with whom the company has collaborated on conceptualising and designing aesthetics include Honda Motorcycle, Royal Enfield, TVS Motors, Eureka Forbes, Bajaj Auto, and Whirlpool. This has also helped in strengthen product design and development capabilities and become a design-to-delivery destination for its customers.
Long-Standing Customer Relationships
The key customer base of the company includes automotive OEMs, global Tier-1 automotive
component suppliers, consumer durables/appliances manufacturers, medical devices
manufacturers, and sanitary ware manufacturers. It has developed long-standing relationships
with several customers. As at June, 2021, its relationship with 10 largest customers
in terms of revenue averaged ~15 years. It has been able to attract new customers
and expand its customer base over the last three years in India and abroad. Recently,
SJS has expanded its product offerings and geographical reach to customers in the
U.S., Brazil, Mexico, Russia, Slovakia, Thailand, Tunisia, and Vietnam.
Intends to Increase Geographical Footprint and Increase Exports
The company intends to increase its presence in existing geographies and enter new
geographies based on current customer relationships. Over the three-months ending
June, 2021 and last three fiscal years, SJS has sold its products to ~175 customers
across 20 countries, including in North America, Italy, Russia, Japan, Thailand,
South Africa, and Poland. The company expects the revenues to continue to increase
from markets located outside India. SJS believes that there are growth opportunities
in certain international markets, and it can benefit from the opportunity offered
by global OEMs and Tier-1 suppliers in the automotive industry and the customer
appliances industry. It also intends to focus on expanding penetration in the two-wheeler
automotive segment in Asia.
Key Risks and Concerns
Total OFS Issue: The size of the IPO is ~Rs. 800 crores which is complete
OFS. Promoters are off-loading ~48.5% of their shares. This raises a concern to
us that if the business has potential to grow in future and has good relationships
with OEMs, then why promoters are off-loading almost half of their holdings.
Customer Concentration: Sales to its top five customers represented ~63% of revenue in FY21 and sales to top 10 customers represented ~87% of revenue in FY21. Loss of any of key customers could materially impact SJS’s business.
Increase in Input Costs to Weigh on Margins: The company’s business is sensitive to the prices of PVC, PC, metalized polyester films, inks, and chemicals which constituted 66.2% total cost of raw materials and 27% of revenue in FY21. Similarly, its subsidiary’s business is sensitive to the prices of polymer granules, chemicals, paints, copper, and nickel. The overall costs of commodities have increased in recent past and we expect this to hit on the margins of the company as its customers have higher bargaining power due to intense competitive nature of the industry.
Competitive Industry: The aesthetics products industry is highly competitive, involving a few players with diversified product portfolios having presence across most OEMs. Also, increased competition from other organised and unorganised aesthetic product and solution providers could impact SJS’s market share, revenues, and profitability.
Does Not Have Firm, Long-Term Agreements with Customers and Suppliers: SJS does not have firm commitment or long-term supply agreements with all its customers, and instead rely on purchase orders, statements of work, and customer schedules to govern the volume, price, and other terms of the development program with customers. Further, the company does not have long-term contracts with its suppliers. Any disruption to timely and adequate supplies of raw materials may impact the pricing and supply of its products.
Investments in Mutual Funds: The company has made investments in Mutual Funds amounting to ~Rs. 41 crores which constitute 12.79% of total net equity. Based on the current scenario in capital markets, these investments seem risky and could impact on the financial statements of the company.
Seasonality Involved in the Business: The company mainly caters to the automotive industry and this industry is subject to seasonal characteristics. This cyclical and seasonal nature of automotive sales and production could impact SJS’s business.
Incorporated in 1987, S.J.S. Enterprises Ltd. is a design-to-delivery aesthetics solutions provider with the ability to design, develop and manufacture a diverse product portfolio for a wide range of customers primarily in the automotive and consumer appliance industries. The company supplied over 11.5 crore parts with more than 6,000 SKUs to ~170 customers in ~90 cities across 20 countries in FY21. Additionally, it manufactures a range of aesthetics products that cater to the requirements of the commercial vehicles, medical devices, farm equipment and sanitary ware industries.
The company’s product offerings include decals and body graphics, 2D appliques and dials, 3D appliques and dials, 3D lux badges, domes, overlays, aluminium badges, decoration parts, lens mask assembly and chrome-plated, printed, and painted injection moulded plastic parts. The company also offers a variety of accessories for 2W and PV aftermarket under its brand – ‘Transform’
SJS has developed long-standing relationships with several customers. As at June, 2021, the company’s relationship with its 10 largest customers in terms of revenue averaged approximately 15 years. It manufactures products from manufacturing facilities located in Bengaluru and Pune, with the facility in Pune acquired as part of the recent acquisition of its Subsidiary. As at June, 2021, the annual production capacity of the Bengaluru and Pune facilities was 20.97 crore and 2.95 crore products, respectively.
S.J.S. Enterprises is one of the leading aesthetics solution providers with a wide range of premium products and enjoys good relationships with some of the well-known OEMs. However, the revenue of the company is almost flat over the last three years. We don’t see any moat in the company which helps it to standout from other players in the industry. Risk-Reward Ratio does not seem to be in favour given the risks such as higher commodity prices, customer concentration, seasonality of the business, among others. Also, the proceeds from the issue will not come to the company but to the promoters, who are off-loading almost 50% of their holdings in the company. The valuation also seems to be high at 34.5x of FY21 earnings. The investor can give this issue a pass. We recommend AVOID on this issue.
Use of Proceeds:
The complete issue of ~Rs. 800 crores is OFS. The company will not receive any proceeds
from the offer and all the offer proceeds will be received by the selling promoters.
Name | % Of the pre-Issue Equity Shares capital | % Of the post-Issue Equity Shares capital |
---|---|---|
Total Promoters & Group | 98.86% | 50.37% |
Total Public Holdings | 1.14% | 49.63% |
Total | 100% | 100% |
Book running lead managers:
Axis Capital Limited, Edelweiss Financial Services Limited, and IIFL Securities
Limited
Management:
Ramesh Chandra Jain (Chairman and an Independent Director), K.A. Joseph (Managing
Director), Sanjay Thapar (Executive Director and CEO), Kevin K. Joseph (Executive
Director), and Amit Kumar Garg (Chief Financial Officer)
Year End March (Rs. in Crores) | 2019 | 2020 | 2021 |
---|---|---|---|
Net Sales | 237.25 | 216.17 | 251.62 |
Expenditure | |||
Material Cost | 95.12 | 82.36 | 97.18 |
Employee Cost | 31.66 | 32.91 | 36.07 |
Other Expenses | 42.08 | 37.11 | 42.11 |
EBITDA | 68.38 | 63.80 | 76.26 |
EBITDA Margin | 28.82% | 29.51% | 30.31% |
Depreciation & Amortization | 9.70 | 12.77 | 14.75 |
EBIT | 58.69 | 51.03 | 61.51 |
EBIT Margin % | 24.74% | 23.61% | 24.45% |
Other Income | 3.58 | 5.10 | 3.93 |
Interest & Finance Charges | 1.99 | 1.78 | 1.27 |
Profit Before Tax - Before Exceptional | 60.28 | 54.35 | 64.18 |
Profit Before Tax | 52.96 | 54.35 | 64.18 |
Tax Expense | 15.36 | 13.07 | 16.41 |
Effective Tax rate | 25.48% | 24.04% | 25.57% |
Exceptional Items | -7.32 | - | - |
Net Profit | 37.60 | 41.29 | 47.77 |
Net Profit Margin | 15.85% | 19.10% | 18.98% |
Consolidated Net Profit | 37.60 | 41.29 | 47.77 |
Net Profit Margin after MI | 15.85% | 19.10% | 18.98% |